2012 (10) TMI 512 - AT - Income Tax

Provision for Rehabilitation and eviction of illegal encroachments - Capital v/s Revenue - Held that - The question as to whether there is a real income which has accrued to the assessee is dealt in State Bank of Travancore Vs. CIT, (1986 (1) TMI 1 - SUPREME COURT) that the concept of real income is applicable in judging whether there has been income or not. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a hypothetical income which does not materialized. This principle is applicable whether the accounts are maintained on cash system or under mercantile system. If the accounts are maintained under the mercantile system, what has to be seen whether income can be said to have been really accrued to the assessee company. Tribunal is not correct that merely because a meager sum is received, the entire amount is to be treated as income and same treatment is to be given in other assessment years. What was to be seen as to which Government Department is remitting the amount. From the details furnished, it is obvious that some of the Departments have never made any payment on the application of real income theory and taking a realistic view, it is held that no income has accrued merely because proforma advices were raised, that too, at the instance of the CAG of India - restore this issue back to the Assessing Officer to examine the matter afresh - in favour of assessee for statistical purposes. Disallowance of retired medical benefit scheme - Held that - CIT (A) rejected the additional evidence filed by the assessee which comprised an actuarial valuation report. The CIT (A) rejected this evidence, even though it was held that the provision for rehabilitation and eviction of illegal encroachments, as claimed by the assessee, needed to be allowed in view of various judicial pronouncements. In his remand report, AO himself agreed that the expenditure was an allowable expenditure. Thus remit this issue to the file of the Assessing Officer to examine the actuarial report and to re-decide the issue on the basis thereof. Disallowance of u/s 40 (a)(ia) - Held that - As decided in Deputy Commissioner of Income-tax - 11(2) Versus Chandabhoy & Jassobhoy 2011 (7) TMI 956 - ITAT MUMBAI the provisions of Section 40(a)(ia) can be invoked only in the event of non-deduction of tax, but not for lesser deduction of tax - in favour of assessee. Prior period income - expenditure netted off against prior income - Held that - Though the assessee has disclosed much more income of the prior period & the prior period income offered by the assessee was more than the prior period expenses claimed in the year under consideration AO has assessed the prior period income and disallowed prior period expenses. He cannot adopt different yardstick for assessing the income and allowing the expenditure - in favour of assessee.

Issues Involved:
1. Disallowance of Rs. 50 crores on account of provision for rehabilitation and eviction of illegal encroachments.
2. Disallowance of Rs. 80.44 crores on account of provision for retired medical benefit scheme.
3. Disallowance of Rs. 2,09,38,390/- under section 40(a)(ia) of the Act.
4. Deletion of addition of Rs. 10,61,38,514/- made by the A.O. on estimate basis for the work undertaken on behalf of other agencies.
5. Deletion of addition of Rs. 14,36,68,882/- netted off by the assessee against prior income under the head "prior period income."

Detailed Analysis:

1. Disallowance of Rs. 50 crores on account of provision for rehabilitation and eviction of illegal encroachments:
The Assessing Officer (A.O.) disallowed the provision for rehabilitation and eviction of illegal encroachments, treating it as a capital expenditure related to a capital asset of land. The A.O. noted that the amount was only a provision and not an ascertained liability, referencing a prior decision by the Hon'ble Delhi High Court. The CIT (A) upheld this disallowance, stating that the provision was an unascertained liability. The assessee contested this, citing a Delhi High Court judgment which restored the issue to the A.O. for re-examination under the "real income" theory. The ITAT remitted the issue back to the A.O. for re-examination in light of the High Court's observations.

2. Disallowance of Rs. 80.44 crores on account of provision for retired medical benefit scheme:
The A.O. disallowed the provision for medical benefits, stating it was not an ascertained liability and lacked detailed justification. The CIT (A) upheld this, noting the provision was based on estimates without scientific or actuarial valuation. The assessee argued that the actuarial valuation report, submitted as additional evidence, should be considered. The ITAT found that both tax authorities agreed the expenditure was allowable and remitted the issue back to the A.O. to re-examine the actuarial report and decide accordingly.

3. Disallowance of Rs. 2,09,38,390/- under section 40(a)(ia) of the Act:
The A.O. disallowed this amount due to short/non-deduction of tax at source, which the CIT (A) confirmed. The ITAT referenced the "DCIT vs. Chanda Bhoy Jassa Bhoy" case, which held that section 40(a)(ia) applies only to non-deduction, not lesser deduction, of tax. Thus, the ITAT accepted the assessee's ground and allowed this part of the appeal.

4. Deletion of addition of Rs. 10,61,38,514/- made by the A.O. on estimate basis for the work undertaken on behalf of other agencies:
The A.O. added this amount on an estimate basis, arguing the assessee failed to show work-in-progress for various projects. The CIT (A) deleted the addition, citing consistent accounting policies and previous appellate orders. The ITAT noted that the High Court had remitted a similar issue back to the A.O., and the SLP against this decision was dismissed by the Supreme Court. Therefore, the ITAT remitted this issue back to the A.O. for re-examination in light of the High Court's observations.

5. Deletion of addition of Rs. 14,36,68,882/- netted off by the assessee against prior income under the head "prior period income":
The A.O. added this amount, stating there was no provision for allowing prior period expenses under the mercantile system of accounting. The CIT (A) deleted the addition, referencing previous appellate orders and the COD's refusal to permit the department to appeal for A.Y. 2001-02. The ITAT found that in similar cases for A.Y.s 2007-08 and 2008-09, the Tribunal had ruled in favor of the assessee, noting that prior period income was more than the expenses claimed. Thus, the ITAT decided in favor of the assessee, rejecting the department's ground.

Conclusion:
Both the appeals filed by the assessee and the department were partly allowed. The ITAT remitted issues regarding provisions for rehabilitation and medical benefits, and the addition for work undertaken on behalf of other agencies, back to the A.O. for re-examination. The disallowance under section 40(a)(ia) was overturned, and the addition for prior period expenses was deleted in favor of the assessee.

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